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Federal Register / Vol. 86, No. 137 / Wednesday, July 21, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES

accessible place for six years. Third, pursuant to the information sharing agreements, funds must have systems that enable them to request frequent trading information upon demand from their intermediaries, and to enforce any restrictions on trading required by funds under the rule.
The collections of information created by rule 22c2 are necessary for funds to effectively assess redemption fees, enforce their policies in frequent trading, and monitor short-term trading, including market timing, in omnibus accounts. These collections of information are mandatory for funds that redeem shares within seven days of purchase. The collections of information also are necessary to allow Commission staff to fulfill its examination and oversight responsibilities.
Rule 22c2a1 requires the board of directors of all registered open-end management investment companies and series thereof except for money market funds, ETFs, or funds that affirmatively permit short-term trading of its securities to approve a redemption fee for the fund, or instead make a determination that a redemption fee is either not necessary or appropriate for the fund. Commission staff understands that the boards of all funds currently in operation have undertaken this process for the funds they currently oversee, and the rule does not require boards to review this determination periodically once it has been made. Accordingly, we expect that only boards of newly registered funds or newly created series thereof would undertake this determination. Commission staff estimates that 36 funds excluding money market funds and ETFs are newly formed each year and would need to make this determination.3
Based on conversations with fund representatives,4 Commission staff estimates that it takes 2 hours of the boards time as a whole at a rate of $4,465 per hour 5 to approve a redemption fee or make the required determination on behalf of all series of the fund. In addition, Commission staff estimates that it takes compliance personnel of the fund 8 hours at a rate 3 This estimate is based on the number of registrants filing initial Form N1A or N3 from 2017 to 2019. This estimate does not carve out money market funds, ETFs, or funds that affirmatively permit short-term trading of their securities, so this estimate corresponds to the outer limit of the number of registrants that would have to make this determination.
4 Unless otherwise stated, estimates throughout this analysis are derived from a survey of funds and conversations with fund representatives.
5 The estimate of $4,465 per hour for the boards time as a whole is based on conversations with representatives of funds and their legal counsel.

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of $72 per hour 6 to prepare trading, compliance, and other information regarding the funds operations to enable the board to make its determination, and takes internal compliance counsel of the fund 3 hours at a rate of $373 per hour 7 to review this information and present its recommendations to the board.
Therefore, for each fund board that undertakes this determination process, Commission staff estimates it expends 13 hours 8 at a cost of $10,625.9 As a result, Commission staff estimates that the total time spent for all funds on this process is 468 hours at a cost of $382,500.10
Rule 22c2a2 also requires a fund to enter into information-sharing agreements with each of its financial intermediaries. Commission staff understands that all currently registered funds have already entered into such agreements with their intermediaries.
Funds enter into new relationships with intermediaries from time to time, however, which requires them to enter into new information sharing agreements. Commission staff understands that, in general, funds enter into information-sharing agreement when they initially establish a relationship with an intermediary, which is typically executed as an addendum to the distribution agreement. The Commission staff understands that most shareholder information agreements are entered into by the fund group a group of funds with a common investment adviser, and estimates that there are currently 840 currently active fund groups.11
Commission staff estimates that, on average, each active fund group enters into relationships with 3 new
intermediaries each year. Commission staff understands that funds generally use a standard information sharing agreement, drafted by the fund or an outside entity, and modifies that agreement according to the requirements of each intermediary.
Commission staff estimates that negotiating the terms and entering into an information sharing agreement takes a total of 4 hours of attorney time at a rate of $425 per hour 12 per intermediary representing 2.5 hours of fund attorney time and 1.5 hours of intermediary attorney time.
Accordingly, Commission staff estimates that it takes 12 hours at a cost of $5,100 each year 13 to enter into new information sharing agreements, and all existing market participants incur a total of 10,080 hours at a cost of $4,284,000.14
In addition, newly created funds advised by new entrants effectively new fund groups must enter into information sharing agreements with all of their financial intermediaries.
Commission staff estimates that there are 41 new fund groups that form each year that will have to enter into information sharing agreements with each of their intermediaries.15
Commission staff estimates that fund groups formed by new advisers typically have relationships with significantly fewer intermediaries than existing fund groups, and estimates that new fund groups will typically enter into 100
information sharing agreements with their intermediaries when they begin operations.16 As discussed previously, Commission staff estimates that it takes 4 hours of attorney time at a rate of $425 per hour 17 per intermediary to enter into information sharing agreements. Therefore, Commission staff
6 The $72 per hour figure for a compliance clerk is from SIFMAs Office Salaries in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 2.93 to account for bonuses, firm size, employee benefits and overhead.
7 The $373 per hour figure for internal compliance counsel is from SIFMAs Management & Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.
8 This calculation is based on the following estimates: 2 hours of board time + 3 hours of internal compliance counsel time + 8 hours of compliance clerk time = 13 hours.
9 This calculation is based on the following estimates: $8,930 $4,465 board time 2 hours =
$8,930 + $576 $72 compliance time 8 hours =
$576 + $1,119 $373 attorney time 3 hours =
$1,119 = $10,625.
10 This calculation is based on the following estimates: 13 hours 36 funds = 468 hours;
$10,625 36 funds = $382,500.
11 ICI, 2020 Investment Company Fact Book at Fig 2.12 2020 https www.ici.org/research/stats/
factbook.

12 The $425 per hour figure for attorneys is from SIFMAs Management & Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.
13 This estimate is based on the following calculations: 4 hours 3 new intermediaries = 12
hours; 12 hours $425 = $5,100.
14 This estimate is based on the following calculations: 12 hours 840 fund groups = 10,080
hours; 10,080 hours $425 = $4,284,000.
15 ICI, 2020 Investment Company Fact Book at Fig 2.12 2020 https www.ici.org/research/stats/
factbook.
16 Commission staff understands that funds generally use a standard information sharing agreement, drafted by the fund or an outside entity, and then modifies that agreement according to the requirements of each intermediary.
17 The $425 per hour figure for an attorney is from SIFMAs Management & Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.

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